Friday, December 26, 2008

S.P. Teas & the Art of Job Selection

In the absence of appropriate information the best course forward is risk diversification to maximize profits. Consumer behavior can be aptly described by their act of ‘not putting all the eggs in one basket’.

Having known the fact that buying 3 S.P. teas at tapri will cost you Rs. 15 when a half liter milk packet that costs Rs. 12 would have catered you with 8 S.P. teas at home, you still vote tapri. Reason for this behavior can be explained by Cost-Benefit analysis that consumers do and by the perceived and economical value of the product or service. Lack of information in how to take the best use of available resources (making tea) may lead to these kinds of decisions. Thus, seeking the benefits and not venturing into an unknown domain, consumer will settle for less economical, but risk free S.P. teas at tapri.

This micro analysis of the situation can be applied to how students choose to apply for jobs during the placements season. Lack of information (about number of companies and economic situations) from the administration leads students to apply for what is available at the moment, even if the particular company is not a company-of-choice for her. Thus the best way out for students is to try and minimize the risks.

Had you been aware of the company you wanted to join, the one that is showing up for placements, the one that has shown interest in your profile and has shortlisted you for the interview, the one that you know would be meeting all your expectations, the one that you know how to get in (by any means), you mightn’t have applied to “Value Fund”, which according to your calculations is a risk diversification strategy having a lower priority. A prudent economical choice made in this case suggests that decisions made on limited information are to diversify risks.

It can be looked from the perspective of Trade-off between Risk and Return. You may settle for a lesser paying and mundane job, if you subsidize the risk and may end up with a perfect match defying all the economic downturn and negative sentiments. But it’s the choice that consumer makes. Looking at the graph, we can understand that a risk-averse consumer would settle for less by ‘keeping both options’ and a risk-taker might gain higher by choosing to stay by one job option.

What I understood after getting a little deeper into the Microeconomics’ fundamentals is that quite often ‘Correlation is not causation’. There may be other economical or behavioral factors that could be guiding certain actions. But the key is that these interlinks help understand complicated theories in simpler ways.